S&P Cuts Orbitz to Sell

Also: analysts' opinions on GameStop and Staples. Plus more

Orbitz (ORBZ ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Scott Kessler

We think Orbitz will continue to be disadvantaged by both supply constraints and rising competition online and off-line. We also think it lacks the resources to weather these adverse conditions, as compared to its competitors in the online travel-agency area. Nonetheless, the company's shares trade at a premium to many of its peers, based on p-e and p-e-to-growth analyses. Reflecting revenue and margin pressures, we're cutting our 2004 earnings per share estimate to 60 cents, from 77 cents, and cutting 2005's estimate to 85 cents from 91 cents. We're lowering our target price to $15 from $19.

GameStop (GME ): Reiterates 4 STARS (accumulate)

Analyst: Amy Glynn, CFA

Video-game software and hardware retailer GameStop posted July-quarter earnings per share of 13 cents, vs. 11 cents, beating our estimate by a penny. Revenues were below our forecast, partially due to hardware shortages, which should continue into the October quarter. However, gross-margin improvement was better than expected. We see second-half fiscal 2004 (Jan.) fueled by strong title releases and improved comparison-store sales, and we forecast 17% top-line growth for full-fiscal 2004. We're raising our fiscal 2005 earnings per share estimate by 1 cent to $1.22, and keeping fiscal 2006's at $1.38. We're also raising our 12-month target price by $1 to $20.

Staples (SPLS ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Office-supplies retailer Staples posted July-quarter earnings per share of 24 cents, vs. 18 cents, in line with our estimate. While sales growth of 7.7% was less than we expected, operating margin expanded 140 basis points, fueled by a 4% same-store sales gain in North American retail stores. We think Staples' industry-leading profitability in domestic operations, and its plans to enter China and expand into Eastern Europe will drive 17% to 18% earnings per share growth over the next couple of years. We're increasing our fiscal 2005 (Jan.) earnings per share estimate by 5 cents to $1.40, and upping fiscal 2006's by 5 cents to $1.64. We're also raising our target price to $34 from $32.

Motorola (MOT ): Maintains 5 STARS (buy)

Analyst: Kenneth Leon, CPA

Motorola shares are higher today after Reuters reported comments from the company on handset sales for the second half of 2004. Motorola says the launch of 20 new models, along with momentum from existing products, should sustain strong sales growth. We see handset sales, which represented 45% of total sales in the second quarter, growing by 37% to 40% in the second half, year-over-year, and we see margins remaining in the 9% to 10% range. We expect all of Motorola's business segments to realize double-digit sales growth in the second half. Priced at 16 times our 2005 earnings per share estimate, and one times sales, we would buy shares.

Estee Lauder (EL ): Maintains 4 STARS (accumulate)

Analyst: Howard Choe

The beauty-supplies manufacturer posted June-quarter earnings per share of 31 cents, vs. 26 cents, which is 2 cents below our estimate on higher cost of goods sold. Sales excluding foreign exchange were up a strong 12%, with the Europe, Middle East, & Africa region and fragrance product sales leading growth. Operating margin was nearly flat. Estee Lauder's outlook for the first half of fiscal 2005 (June) is more modest than our estimate, reflecting higher anticipated marketing spending, but the full-year outlook remains in line.

Deere & Company (DE ): Maintains 5 STARS (buy)

Analyst: Amy Glynn, CFA

The farm-equipment maker posted July-quarter earnings per share of $1.58, vs. $1.02, beating our $1.42 estimate. Equipment sales rose 27% on higher shipments, currency translation, and improved price realization. We expect strength in U.S. farm cash receipts to drive growth in agricultural equipment in fiscal 2004 (Oct.) and 2005. In addition to stronger markets, we think a new product line-up, efforts to offset higher steel prices, and other productivity initiatives will continue to benefit Deere. We're raising our fiscal 2004 and fiscal 2005 earnings per share estimates to $4.99 and $5.45 from $4.70 and $5.35. Our discounted cash-flow-driven 12-month target price remains $89.

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